Bond and stock trends diverge on 2024 outlook

Significance

This is driving a rally in government bonds and equities. However, labour markets remain tight, fuelling wage growth and keeping services inflation above central banks’ 2% targets. Pressure for rate cuts will rise as growth slows, but the amount of policy easing that bond markets are pricing in implies a deeper downturn than the ‘soft landing’ that stock markets anticipate.

Impacts

• The price of Brent crude oil has fallen about 10% this month as global demand is weakening and supply from non-OPEC countries is rising.
• Emerging market (EM) investors seek diversification; Chinese stocks are down more than 12% in 2023, but other EM equities are up 13%.
• The ‘magnificent seven’ tech share group, including Apple, Amazon and Tesla, is near 30% of the S&P 500 and is driving the US stock gains.